The Fed vs. BOJ: Who Raises Rates First?
2nd September
Key takeaways
RBNZ and BOC decide today - RBNZ expected to hike to 2.75%, BOC expected to hold at 2.25%.
Fed hike odds jumped from 35% to ~60% after Warsh's hawkish Jackson Hole tone.
BOJ may move before the Fed - yen weakness and the wide rate gap add pressure to act sooner.
Lukman Otunuga
Head of Market Research
Both the US dollar and Japanese yen are drawing strength this week from rising expectations that their respective central banks will hike in September.
That creates an unusual tug-of-war: the two currencies can't both win against each other, even as each benefits from its own domestic rate story. Add rising geopolitical risk to the mix, and the safe-haven bid currently favours the dollar over the yen.
Nine Central Banks Decide in September
Nine major central banks announce policy decisions this month. Based on current market pricing, the Bank of Canada, Bank of England, Swiss National Bank and PBoC are seen as more likely to hold, while the RBNZ, ECB, Federal Reserve, Bank of Japan and RBA carry hike probabilities above 50%.
The Fed and BOJ carry the most significant market impact, given the width of their interest-rate spread and the intense scrutiny on the yen's exchange rate.
Fed hike pricing has been unusually volatile. Odds jumped from around 35% to roughly 60% in a single week after Fed Chair Kevin Warsh's hawkish tone at the Jackson Hole symposium on August 28, where he warned the Fed still has "work to do" on inflation.
There's an added wrinkle worth watching: President Trump has repeatedly called for lower rates in recent weeks, even while praising Warsh — the chair he himself appointed — as doing a "great job." The irony is that Warsh's own public tone has moved in the opposite direction from what Trump wants, creating a genuinely unusual dynamic between the White House and the Fed's own leadership.
The Bank of Japan may move before the Fed does. With the yen under sustained pressure and the rate gap with the US still wide, the BOJ has stronger incentive to act sooner rather than later.
September Central Bank Calendar
What's to Watch Today
The RBNZ and Bank of Canada both hold policy meetings today, September 2 — the RBNZ announces at 9:00am local time, the Bank of Canada at 9:45am ET.
The RBNZ is widely expected to raise rates by 25bps to 2.75%. The Bank of Canada is expected to hold at 2.25%.
Also today: the US ADP Employment Report, due at 8:15am ET.
USDCAD
What could move the asset:
Bullish factors: broad dollar strength, a BOC hold, positive US employment data.
Bearish factors: a weakening dollar, a surprise BOC hike, disappointing US employment data.
Technical overview: USDCAD is consolidating in the short term, with the broader trend leaning bullish. Resistance sits near 1.3910 - a break above opens room toward 1.3960 -1.3980, close to the 200-day moving average. Support sits in the 1.3840 - 1.3860 zone, aligned with the 50-day moving average.
NZDUSD
What could move the asset:
Bullish factors: a weaker dollar, an RBNZ hike, rising oil prices.
Bearish factors: a stronger dollar, an RBNZ hold, softer oil prices following the recently announced US-Venezuela oil agreement - though this is a longer-term structural development rather than an immediate supply shock, since new output isn't expected until the late 2020s at the earliest.
Frequently asked questions
Whoever hikes first shifts the dollar-yen rate gap, moving USD/JPY sharply either way.
He wants cuts, but Warsh - his own pick - has turned more hawkish, not less.
US ADP employment, out at 8:15am ET, ahead of Friday's NFP.
